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Auto Sales Slow, Inventories Rise: Is It All Due to Weather?

Written by: Ted Reed02/21/14 - 10:55 AM EST

DETROIT (TheStreet) -- Severe winter weather in February disrupted auto sales for the third month in a row, according to the first expert report on auto sales.

Nevertheless, J.D. Power is forecasting a February sales gain. The firm said it anticipates strong sales in the second half of February, traditionally a stronger selling period than the first half. It also noted that transaction prices are strengthening. The firm didn't assess whether continuing harsh weather will weaken second-half sales. It looked at sales data for the first 13 selling days of the month.

J.D. Power projected that overall February sales will reach 1.2 million, up 3% from the same month a year earlier, with a seasonally adjusted annual sales rate of 15.7 million. Retail sales, the most accurate measure of consumer demand, are expected to reach 972,400 in February, up 5%.

"Although severe weather impacted sales in early February, the negative effect should be somewhat mitigated since the majority of vehicle sales occur in the second half of the month," said John Humphrey, a J.D. Power senior vice president, in a prepared statement.

"The industry is on track to reach its highest-ever average transaction price for the month of February, with prices exceeding $29,000," he said. "This beats the previous record from February 2013 by more than $400."

Auto sales came in below expectations in December and January. The weakness was widely blamed on the weather. However, since Labor Day, U.S. new-vehicle sales have risen just 2% year over year, compared with a 10% gain in the 12 months before that, Automotive News reported recently.

J.D. Power affiliate LMC Automotive continued to forecast 2014 light-vehicle sales of 16.2 million. up from 15.6 million in 2013.

The firm said inventory levels are high, due to slow January sales and high fourth-quarter production. Industry new vehicle inventory stood at 88 days, up 24 days since the start of January, while the Detroit Three combined supply level was 109 days.

"While inventory levels are excessive at this point, demand during the spring selling season will help resolve the situation," said LMC analyst Bill Rinna. "However, if inventory is not cleared out by June, production levels in the second half of the year are at risk."

-- Written by Ted Reed in Charlotte, N.C. To contact this writer, click here.